BRASILIA (Reuters) -Brazil expects its public debt to surge by as much as 13.5% in 2024 and aims to progress in its lengthening while projecting a greater presence in the international debt market this year, said the Treasury on Tuesday.
Public debt is expected to range between 7 trillion reais and 7.4 trillion reais in 2024, compared with 6.520 trillion reais ($1.31 trillion) in 2023, according to the Treasury’s Annual Financing Plan.
In the document, the Treasury unveiled plans to advance in the debt-lengthening strategy, particularly for fixed-rate securities, now incorporating 72-month National Treasury Notes (LTN) among the offered securities.
The Treasury has observed an increased market appetite for “slightly longer” fixed-rate bonds, said Treasury Secretary Rogerio Ceron in a press conference.
Following its inaugural issuance of sustainable sovereign bonds in 2023, the Treasury anticipated maintaining a “regular presence” in this market, “primarily aiming at the development of the sovereign interest rate curve, serving as a benchmark for both the Treasury and the Brazilian corporate sector.”
According to Ceron, this goal is also valid for traditional sovereign bond issuances, which is why, under suitable conditions, the Treasury will have a more prominent presence in the external market in 2024.
Last week, Brazil raised $4.5 billion in its first entry this year into the global dollar-denominated debt market with the sale of 10-year and 30-year bonds.
January was also positive for domestic issuances, said Otavio Ladeira, deputy secretary of Public Debt. In total, the Treasury issued 158 billion reais, the highest volume ever recorded for the period and 40 billion reais above the initial projection, he said.
The average maturity of Brazil’s debt profile is expected to range between 3.8 and 4.2 years in 2024, compared to 4 years in 2023.
Additionally, the proportion of debt maturing over the next 12 months is projected to be between 17% and 21%, compared with 20.1% recorded last year.
The Treasury acknowledged that the share of securities linked to the benchmark interest rate Selic is expected to rise this year to 40% to 44% of the total, up from 39.7% last year, distancing itself from the targeted level of 23% set for 2035.
The strategy of increasing these securities in the short term is because they have longer maturities on average than fixed-rate securities, contributing to the management of the Brazilian debt refinancing risk, it said.
The Treasury also emphasized that the success of a financing strategy more focused on issuing fixed-rate and long-term inflation-indexed securities depends on “macro-fiscal conditions that enable an agenda of economic growth and debt sustainability.”
Ceron also said that forthcoming bonds of the country’s public development bank BNDES should not compete with Brazil’s sovereign debt securities.
BNDES plans to issue more debt to enhance its funding and back President Luiz Inacio Lula da Silva’s “re-industrialization plan,” which is heavily reliable on loans by the bank.
Its announcement caused market stress triggered by concerns over a potential increase in government subsidies.
The Treasury reviewed a bill sent to Congress late last year outlining creation of Development Credit Letters (LCD) by BNDES, and precautions were taken to ensure that the new instruments had an emission limit and did not pose any risks, said the Treasury secretary.
The bill still requires approval from lawmakers.
($1 = 4.9590 reais)
(Reporting by Marcela AyresEditing by Marguerita Choy and David Gregorio)